The global backstop for failing banks is mostly unfinished. Financial Stability Board Secretary General John Schindler told RiskLive Asia on October 21 that the FSB’s peer review of public sector backstop funding mechanisms for banks in resolution found only one in five member jurisdictions fully compliant with the relevant policies, while approximately half have material gaps. Incomplete implementation, he said, limits authorities’ ability to resolve systemic banks and could affect financial stability in periods of stress, and progress in this area is both necessary and urgent.
The speech set that finding inside the current market environment. Conflicts in the Middle East and Ukraine are contributing to volatility, some long term bond yields have reached decade highs, nonbank financial intermediation including private credit continues to expand and is increasingly interlinked with the rest of the system, and the artificial intelligence investment boom is increasingly debt financed, creating potential crowding out and circular financing risks.
On the FSB’s forward work, Schindler pointed to the twelve sound practices for responsible adoption of artificial intelligence published the previous week, to continued work on cross border vulnerabilities of global stablecoins following the G20 meetings in Bangkok, and to eight principles for modernising regulatory and supervisory frameworks now out for consultation, to be finalised in 2027. Modernisation, he said, is not deregulation and should preserve or enhance resilience.
For fixed income readers the operative sentence is the compliance figure. The post 2008 reforms strengthened the system, but the funding leg of resolution, the part that determines who pays on the worst weekend, is complete in only a fifth of the jurisdictions that wrote the rules.